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Estimating the costs of hydrogen infrastructure: EHB launches new report

The European Hydrogen Backbone (EHB) initiative has launched a new report “Implementation roadmap – Cross border projects and cost update” in an effort to shed light on the most recent hydrogen infrastructure developments and cost estimates.

According to the report, the buildout of the EHB network is well underway. Transmission System Operators (TSOs) are planning to make substantial investments and can point to tangible progress on corridor projects.

All five envisioned corridors have projects currently in progress, with a clear majority of EHB member TSOs working on implementation and producing real progress in their countries.

CEE projects to be operational in 2030

In particular, concerning Central and Eastern Europe, Corridor A is intended to deliver low-carbon hydrogen from North Africa and Southern Italy towards Central Europe. Green hydrogen from North Africa will first be injected into the Italian Hydrogen Backbone, consisting of approximately 2,300 kilometres of pipeline (of which 75 per cent is repurposed). After serving domestic demand in Italy, hydrogen will be moved into additional central European countries. The route from Austria via Slovakia and the Czech Republic to Germany is fully made up of repurposed pipelines and will serve demand centres along the corridor. Additionally, a connection to the Slovenian Hydrogen Backbone will not only supply national demand but also enable further connection to Croatia. Furthermore, the SunsHyne corridor will be used to serve hydrogen demand in Slovakia and Czechia. When needed, the connection to Hungary can also serve demand in southern Europe.

The Nordic and Baltic regions have also significant renewable energy resources based on low-cost renewable energy, with three major projects planned to connect with demand regions. For example, the Baltic Sea Hydrogen Collector offshore project, which connects Finland, Sweden and Germany, as well as the energy islands in the region, will link the vast offshore wind resources to be used for hydrogen production with demand in Western and Central Europe.

Finally, the Corridor E enables the transport of hydrogen from Greece or from Ukraine through Bulgaria, Romania, Hungary, Slovakia and Austria to Central Europe. Projects already under development include the RO/HU H2 corridor, the HU/SK H2 corridor and the Central European Hydrogen Corridor (CEHC) or the H2EU+ Store initiative. Each of these projects is currently in the pre-feasibility phase and are all aiming to be operational in 2030. A significant part of these projects also directly interfaces with other neighbouring initiatives, such as the SunShyne Corridor and the SoutH2 Corridor, where they enable the transport of hydrogen from East and Southeastern Europe as well as from Northern Africa through Corridor A. To enable flows in all these directions, there is a need for technical flexibility in the transmission system, especially in Slovakia and Austria.

Rising costs: two distinct financial phases expected

Regarding the financial part, the report found that globally impactful factors like COVID, the Russian invasion of Ukraine, rising inflation and policy responses to climate change have all influenced implementation costs. The report presented an updated, bottom-up accounting of unitary costs for capital expenditures (CAPEX) and developmental expenditures (DEVEX) of pipelines and compressors, based on new primary data collected from the TSOs’ real-world projects.

As reported by the EHB, its network is likely to encounter two distinct financial phases. The first one represents the market ramp-up, involving limited hydrogen demand and low booking of capacity on the hydrogen network. As the hydrogen economy develops and demand rises, the market will transition to the later, mature market phase. However, there is a possibility that demand might take time to develop, as market design enablers will take some time to be fully developed and implemented.

Thus, the first challenge is defined as the investment recovery challenge (IRC), which arises from the potential financial disparity between the regulated revenue cap and the revenue that can be earned from network users on account of real network capacity bookings during the initial market ramp-up phase.

Secondly, the upfront financing gap (UFG) is a consequence of the IRC and represents the difference between the total required upfront investment prior to project operation and the ability of a TSO to finance the project.

Furthermore, the extent of potential financial challenges depends on the amount of public financial support for infrastructure, the share of existing infrastructure that can be repurposed, as well as the location of supply and demand centres (which are very much country-specific).

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